By Emanuela Barbiroglio

Analysis of past cycles bodes well for central London offices

The central London office market won’t suffer the sharp falls in rents seen in previous cycles, according to analysis by CBRE that draws on more than 30 years of data.

The firm claims that the scale of development completions in the pipeline and the amount of secondhand space likely to come on to the market are not comparable with previous downturns.

Savills graph static

Two of the last three slumps, in 1991 and 2009, were associated with high levels of development activity. For example, in 1991, development completions hit more than 12m sq ft.

By contrast, last year’s development completions totalled just 2.4m sq ft. Although CBRE estimates that the volume of completions will increase significantly this year to about 6.7m sq ft, more than half this space is pre-let.

London offices infographic

“Despite an easing in office-based employment growth, this moderate supply response means that London office rents are protected from the large falls seen in other cycles,” says Kevin McCauley, head of London research at CBRE.

The other potential danger typically is a surge in the amount of secondhand space hitting the market. One of the main causes of the 2001 downturn was the high volume of space dumped on to the market by financial occupiers. The amount of secondhand space available to let in central London catapulted from less than 3.3m sq ft in 2000 to more than 12.4m sq ft the following year.

Savills graph blank

However, McCauley does not see a release of office space as a danger at the moment. “This cycle, we believe that there will be less tenant-held secondhand space coming to the market than in previous cycles,” he says.

He adds that a repeat of 2001 is unlikely because in the run-up to that year’s slump, the banks and others in financial services had been on one of the biggest expansion drives since the Big Bang, which meant that they had large volumes of underused space to offload when the market turned.

Today, they have less space to release on to the market in the event of another economic contraction because they have been downsizing their operations in recent years. “2001 was a one-off and will not happen again,” says McCauley. Time will tell.

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